Oil drops below $82 as Goldman news hits risk appetite

Oil drops below $82 as Goldman news hits risk appetite

Perth: Oil prices sank to a three-week low of below $82 a barrel on Monday, extending the previous session’s 2.7% decline, as risk appetite soured across the board after investment bank Goldman Sachs was charged with fraud.

Goldman, which has large positions across many markets including commodities, was charged with fraud by the US Securities and Exchange Commission (SEC) over its marketing of a subprime mortgage product. The news dragged down broad US equity indexes.

The banking powerhouse also saw pressure building on both sides of the Atlantic on Sunday, with Germany and the U.K. saying that they will seek details from the SEC about Goldman’s activities as a prelude to potential legal steps following a US-led fraud investigation.

US crude for May delivery fell $1.44 to $81.80 by 0146 GMT, after having dropped as low as $81.73 -- the lowest since 29 March. The contract already fell 2.65% on Friday, the largest one-day percentage loss since 5 February.

London Brent crude fell $1.21 to $84.78.

“We are seeing a spillover reaction to news of Goldman being charged," said David Moore, an analyst at the Commonwealth Bank of Australia in Sydney.

“It’s mainly a sentiment issue; oil prices have risen very strongly in recent weeks on bullish sentiments and anticipation of a demand recovery later this year. So it is naturally very vulnerable to a correction when market sentiments change."

Goldman has vowed to defend itself.

The fraud charges, along with disappointing earnings from heavyweights on Friday, dragged Asian stocks lower on Monday, with the Japan’s Nikkei index falling to a three-week low.

Tepid risk appetite also prompted the US dollar to rise, stretching gains in Asian trade on media reports that a wave of lawsuits was being planned against Goldman Sachs.

London’s Times newspaper reported on Monday that lawyers spent the weekend hunting for investors who lost money to join a potential action against the bank.

Oil prices have risen strongly in recent weeks, topping an 18-month high of above $87 earlier this month, as robust economic data buoyed hopes of a demand recovery.

But some analysts have said that prices have run ahead of demand fundamentals, while a senior analyst at the International Energy Agency said on Friday that oil prices at $85 per barrel could endanger the fragile global economic recovery.

On the geopolitical front, markets may keep an eye on Iran on Monday after Pentagon officials said US President Barack Obama’s national security advisers are considering a range of options to curb Iran’s nuclear programme, among them military strikes, if diplomacy and sanctions fail.

Separately, money managers cut net crude oil long positions on the New York Mercantile Exchange in the week to 13 April, scaling back from a record level of net longs in the previous week, Commodity Futures Trading Commission data showed on Friday.